Research Circular #RS05-295
DATE:
May 3, 2005
TO:
Members
RE:
Riggs National Corporation ("RIGS/RNQ") Proposed Election Merger
with The PNC Financial Services Group, Inc. ("PNC/WYL/VSM")
FROM:
Scott Speer
Shareholders of Riggs National Corporation ("RIGS/RNQ") will vote on Friday,
May 6, 2005, to approve a proposed Merger between RIGS and The PNC Financial
Services Group, Inc. ("PNC/WYL/VSM").
If the merger is approved and consummated, the amount of PNC stock, cash, or
combination of stock and cash to be received for each RIGS Common Share will
be based on the average high and low per share sales prices of PNC Common
Shares as described in the Proxy Statement/Prospectus and will be subject to
prorations. The merger is designed to substantially equalize the value of the
consideration to be received for each RIGS Common Share at the time of the
merger, irrespective of the elections made by individual shareholders.
The
actual per share stock consideration and per share cash consideration to be
paid to RIGS Shareholders will not be determined until the effective time of
the merger or thereafter.
The merger is expected to become effective on or about May 13, 2005.
The Election
Within the terms of the aggregate merger, individual RIGS Shareholders may:
a) elect to receive an amount of cash ("Cash-electing"), OR
b) elect to receive an amount of PNC Common Shares ("Stock-electing"), OR
c) elect to receive a combination of cash and stock ("Mixed-electing"), OR
d) register no preference ("Non-electing"). Non-electing Shareholders
may receive only PNC stock, only cash, or a combination of cash and PNC
stock.
Cash will be paid in lieu of fractional PNC Shares.
SHARES WHICH ARE NOT SUBJECT TO AN EFFECTIVE
AUTOMATICALLY BE CONSIDERED "NON-ELECTING" SHARES.
ELECTION
WILL
Elections must be submitted to the Exchange Agent: Computershare Trust Company
of New York. The election deadline is 5:00 PM, Eastern Time, on May 5, 2005.
RIGS Shareholders must observe all terms and conditions for the election as
specified in the RIGS Proxy Statement/PNC Prospectus. Among such items, it
should be noted RIGS Shares may be delivered pursuant to an election under
"Notices of Guaranteed Delivery", which allows delivery of RIGS Shares within
three (3) New York Stock Exchange ("NYSE") trading days of submission of the
notices. Elections may be made under "Notices of Guaranteed Delivery", on or
before the election deadline. RIGS CALL OPTION HOLDERS WHO INTEND TO
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PARTICIPATE IN THE ELECTION MUST EXERCISE THEIR OPTIONS IN ADVANCE OF THE
ELECTION DEADLINE. In all cases, Call option holders exercising in order to
obtain stock for an election must exercise in sufficient time to be able to
make valid delivery pursuant of the election procedures.
The Merger Consideration: Prorations
The RIGS election will be subject to prorations as described in the RIGS Proxy
Statement/PNC Prospectus. Because the election procedures allow for delivery
of RIGS Stock under Notices of Guaranteed Delivery, the result of the
elections may not be known until some time after the election deadline.
Prorations cannot be exactly determined until after the result of the
elections is determined. Accordingly, THE MERGER CONSIDERATION TO BE ACTUALLY
RECEIVED BY EACH CATEGORY OF RIGS SHAREHOLDER (CASH-ELECTING, STOCK-ELECTING,
MIXED-ELECTING, NON-ELECTING) MAY NOT BE KNOWN UNTIL SOME TIME AFTER THE
SHAREHOLDER MEETING.
THE FOREGOING IS AN UNOFFICIAL SUMMARY OF THE TERMS OF THE MERGER, PREPARED BY
CBOE FOR THE CONVENIENCE OF ITS MEMBERS. CBOE ACCEPTS NO RESPONSIBILITY FOR
THE ACCURACY OR COMPLETENESS OF THE SUMMARY.
MEMBERS SHOULD REFER TO THE
RIGGS NATIONAL CORPORATION AND THE PNC FINANCIAL SERVICES GROUP, INC. JOINT
PROXY STATEMENT/PROSPECTUS DATED APRIL 6, 2005, FOR THE AUTHORITATIVE
DESCRIPTION OF THE MERGER AND ALL OF ITS TERMS AND CONDITIONS.
Contract Adjustments
Pursuant to Article VI, Section 11, of OCC's By-Laws, all outstanding RNQ
options shall be adjusted as follows.
On the business day immediately
following the Effective Time of the Merger each adjusted Riggs National
Corporation contract will require the receipt or delivery of: the appropriate
amount of cash (if any), shares of The PNC Financial Services Group, Inc.
("PNC") Common Stock (if any), and cash in lieu of a fractional share of The
PNC Financial Services Group, Inc. ("PNC") Common Stock (if any), where such
amount of cash (if any), The PNC Financial Services Group, Inc. ("PNC") shares
(if any), and cash in lieu of a fractional The PNC Financial Services Group,
Inc. ("PNC") share (if any) is based on 100 times the Merger Consideration per
RIGS share to be received for a Non-Election, where cash in lieu would be paid
for a fractional share of The PNC Financial Services Group, Inc. ("PNC")
Common Stock, if any. Premiums for the adjusted RNQ options will continue to
be calculated on the basis of a multiplier of 100, i.e., for premium and
strike-price extensions, 1.00 will equal $100. The Riggs National Corporation
option symbol will change to RKC.
[Any FLEX series that may exist will be
adjusted in a similar manner to the standardized option.]
Adjusted Option Symbols
On the business day immediately following the Effective Time of the Merger,
trading in the RNQ option series will be on an adjusted basis. At 8:30 A.M.,
Chicago time, the following symbol adjustments to the options will be
effected:
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EXISTING SERIES
MONTH/STRIKE
CALLS
ADJUSTED SERIES*
MONTH/STRIKE
CALLS
PUTS
PUTS
May
May
May
May
May
17 1/2
20
22 1/2
25
30
RNQEW
RNQED
RNQEX
RNQEE
RNQEF
RNQQW
RNQQD
RNQQX
RNQQE
RNQQF
->
->
->
->
->
May
May
May
May
May
17 1/2
20
22 1/2
25
30
RKCEW
RKCED
RKCEX
RKCEE
RKCEF
RKCQW
RKCQD
RKCQX
RKCQE
RKCQF
Jun
Jun
Jun
Jun
Jun
15
17 1/2
20
22 1/2
25
RNQFC
RNQFW
RNQFD
RNQFX
RNQFE
RNQRC
RNQRW
RNQRD
RNQRX
RNQRE
->
->
->
->
->
Jun
Jun
Jun
Jun
Jun
15
17 1/2
20
22 1/2
25
RKCFC
RKCFW
RKCFD
RKCFX
RKCFE
RKCRC
RKCRW
RKCRD
RKCRX
RKCRE
Aug
Aug
Aug
Aug
Aug
15
17 1/2
20
22 1/2
25
RNQHC
RNQHW
RNQHD
RNQHX
RNQHE
RNQTC
RNQTW
RNQTD
RNQTX
RNQTE
->
->
->
->
->
Aug
Aug
Aug
Aug
Aug
15
17 1/2
20
22 1/2
25
RKCHC
RKCHW
RKCHD
RKCHX
RKCHE
RKCTC
RKCTW
RKCTD
RKCTX
RKCTE
Nov
Nov
Nov
Nov
Nov
15
17 1/2
20
22 1/2
25
RNQKC
RNQKW
RNQKD
RNQKX
RNQKE
RNQWC
RNQWW
RNQWD
RNQWX
RNQWE
->
->
->
->
->
Nov
Nov
Nov
Nov
Nov
15
17 1/2
20
22 1/2
25
RKCKC
RKCKW
RKCKD
RKCKX
RKCKE
RKCWC
RKCWW
RKCWD
RKCWX
RKCWE
* Any additional RNQ series that are added prior to the effective time of the
merger will also be adjusted in the manner described above.
Settlement
The OCC will delay settlement of the adjusted RKC option contracts exercise
and assignment activity until the Exchange Agent determines the Non-electing
merger consideration; the end of "when issued" trading in The PNC Financial
Services Group, Inc. ("PNC"), if any; and until the determination of the cashin-lieu amount for fractional PNC shares, if any.
GTC Order Conversion
On the Effective Date of the Merger, immediately after the CBOE close, the
system will convert or cancel all resting orders in the RNQ order book. If
your firm has requested, all EBook orders (phone, wire, and electronic) and
all ORS orders residing outside the book (booth or crowd routed) will be
converted reflecting the adjustments. If your firm has requested, all EBook
orders and ORS orders residing outside of the book will be canceled. If your
firm receives EBook CXL drops, the CXL confirms will print at your booth at
3:15 p.m. ORS CXLs will also be transmitted electronically to your branches.
Immediately after the close, the book staff will return a final written report
listing the orders that are converted or canceled to all firms. If converted,
this list will also show how the new orders will be adjusted.
This report
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will be available on request anytime during the day prior to the night of the
adjustment.
Important Exercise Considerations
After the merger is consummated and the contract adjustment described above is
effected, outstanding adjusted RKC Call option holders will receive upon
exercise (and Put holders deliver upon exercise) the aggregate Non-Electing
merger consideration (on a per contract basis).
IF RNQ CALL OPTION HOLDERS DO NOT WISH TO RECEIVE THE NON-ELECTING
CONSIDERATION UPON EXERCISE AFTER THE CONTRACT ADJUSTMENT, THEY MUST EXERCISE
IN ADVANCE OF THE CONTRACT ADJUSTMENT AND SUBMIT ELECTIONS PURSUANT TO THE
ELECTION PROCEDURES DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS.
The election deadline is 5:00 PM, Eastern time on May 5, 2005. Exercisers must
exercise in sufficient time, and observe all terms and conditions for making a
valid election.
Protect Provisions
Until the contract adjustment is effected, exercises of RNQ options will
continue to be settled in the regular manner, through National Stock Clearing
Corporation ("NSCC"). Where an exercise is settled through NSCC, the rights of
the exercising or assigned Clearing Member are governed by the rules of the
NSCC. The Options Clearing Corporation (the "OCC") understands that the NSCC
has rules or procedures designed to enable purchasers of stock subject to an
election, tender, or similar event, to protect themselves for the value
accruing to that event. These rules generally provide that persons effecting
purchase transactions (including call exercises) on or before a deadline
(including any election deadline) can be protected for the value of the event
if Shares are not delivered to them in sufficient time to enable them to
participate in the event, provided timely and proper notice of a participant's
need and desire for protection is given to the NSCC. These rules are generally
referred to as "protect" or "liability notice" procedures. Sellers of stock
(including assigned call writers), who fail to make timely delivery to the
NSCC, may be subject to liability under these procedures. Clearing Members
should review these procedures of the NSCC to determine the appropriate timing
for actions required to be taken to protect themselves with respect to the
RIGS election. Specific questions as to these rules should be addressed to the
NSCC.
Special Risks
CALL OPTIONS Writers of call options who are uncovered with respect to deliverable
securities subject to deadlines or cut-off times (such as expirations of
tender offers, rights subscriptions, elections, or similar events) should be
aware of a risk associated with the timing of their possible assignments:
Equity option exercise settlement normally occurs 3 business days after the
exercise date, and 2 business days after the assignment date. An uncovered
call writer who has an obligation to deliver securities in 2 business days of
his assignment may not be able to fulfill his delivery obligation by effecting
a regular-way purchase (3 business-day settlement) or call option exercise (3
business-day
settlement
after
exercise).
Such
uncovered
writer
may
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Page 5
nevertheless be subject to liability under the "protect" provisions of NSCC
(see above) with respect to his assignment delivery obligation, because he
cannot make delivery in 2 business days. Additionally, Cash Market (same-day,
or less-than-3-business day settlement) may not be available, or may be
expensive for buyers.
PUT OPTIONS –
Writers of put options should be aware that events such as expiration of
election deadlines or similar events may have significant--possibly adverse-effects on the market value of the underlying security put writers would be
obligated to buy if assigned as a result of an exercise done after the
expiration of such deadlines, insofar as such securities would no longer be
subject to elections, tenders, or similar actions.
Questions regarding this memo can be addressed to Options Industry Services at
1-888-OPTIONS (1-888-678-4667). CBOE contract adjustment memos can also be
accessed from CBOE.com at the following web address:
http://www.cboe.com/ContractAdjustments